Government now faces a problem in how to fund itself
Ministers can only look on enviously at other nations as muddled messaging and contradictions continue
Apologies for starting with a cliché, but what a complete and utter shambles. I was standing on the top of Bowfell in Cumbria – with its magnificent views down to Morecambe Bay to the south and the neighbouring peaks of Scafell and Scafell Pike to the north – when speculation first started to circulate about a second lockdown.
Mercifully out of reach of a mobile phone signal, and therefore blissfully unaware of this dispiriting reversal in strategy, a cooling breeze was blowing across the sun-drenched summit as if deliberately summoned to refresh after the exertions of the climb.
Down in the Langdale valley, the hostelries were buzzing with silverhaired staycationers; apart from somewhat laxly observed social distancing and perspex screens at the bars, there was little sign, or even mention, of the traumas of the last six months. All was right with the world, and for a moment it was possible to believe the pandemic largely over.
Regrettably not. Listening to the radio on the long drive back to London delivered the requisite reality check.
The Government, I fear, only has itself to blame for the mess the nation is now in. From the start, its messaging and instruction have been confused, half-hearted and often contradictory.
Just two weeks ago, ministers were openly criticising companies that seemed to be dragging their feet in bringing workers back to the office, as if they were somehow failing in their patriotic duty.
Now, employees are again told to work from home, with all prior instruction, only so recently issued, forgotten. Much of the rest of the Government’s package of curbs is pure window dressing.
For many struggling eateries and pubs, the 10pm curfew will be the final straw, while doing little if anything to stem the rise in infections.
The new curbs admittedly fall some way short of full-scale lockdown. Schools and universities are to remain open, and thus far at least there has been no return to the travel bans and Stalinist imprisonment of last spring.
Yet I know of no one in government who honestly believes this is where things will end. Boris Johnson’s “stitch in time” has in all probability come too late to stem the tide.
Planning for a two-week, circuitbreaking national lockdown some time next month is already well advanced. For the economy, and many of the companies that make it up, this is a pivotal moment. Up until now, and much to the surprise of bankers, there have been surprisingly few outright insolvencies. Interest payments and debt repayment schedules have been largely met. In part, that’s down to the Government’s various business and income support schemes.
For instance, many conventional lending facilities have been refinanced with interest-free bounce-back loans.
But it is also because as long as there was light at the end of the tunnel, as long as the economy was on the path to waking up again, it seemed worth persisting. To see this now go into reverse is for many an abandon-allhope moment where to struggle on is only to throw good money after bad. Better perhaps to cut your losses.
Retailers, restaurants, fast-food outlets and pubs have attempted manfully to make things work since lockdown ended, but even before the latest restrictions, most were struggling for viability.
The cleverer ones will have attached the lease on each outlet to a separate company, allowing them to bankrupt branches without landlords being able to come after the parent for breaking the lease. But most will hold all leases through the parent; if one goes down, they all go down.
Most landlords are, meanwhile, continuing to live in a bygone age, demanding inflated rental payments in full, not because they delusionally don’t recognise changed circumstances, but because loan covenants will be widely breached if the rents aren’t there to support previously inflated book values.
Much the same applies to commercial office space, substantial amounts of which can no longer sustain the sort of rental payments that supported one time inflated valuations. Commercial property is generally at the heart of every loan impairment cycle. This one is going to be no different, however much individual banks may have attempted to reduce their exposure after the disaster of the financial crisis.
What’s so galling about the UK’s predicament is that a number of other countries seem to have managed things so much better. It may be that the post-industrial, service-based nature of the UK economy makes it particularly vulnerable to a contagion of this sort, but this can be no more than part of the explanation for having to start closing up shop again.
In Germany, the instruction has been clear, straightforward and overwhelmingly complied with right from the start. If you believe the numbers, China – where the pandemic began for heaven’s sake – has managed to keep its Covid death toll down to less than 5,000. The infection rate also seems to be largely contained at low levels without a need for nationwide lockdowns. Here in Britain, the rules and containment measures continue to be overly complicated and quite casually observed. So far, the markets have been surprisingly tolerant of the
Government’s omnishambles, thanks in part to massive money printing by the Bank of England. But the recent wobble in the pound is a sign that their patience may be wearing thin.
With most other countries in varying versions of the same boat, there’s been safety in numbers; international investors have nowhere to run to.
But fast approaching is a separate, uniquely British, self-made economic shock that may further shake confidence in the pound. Whether there is a trade deal with the EU or not, the end of the transition is bound to damage exports, at least for a while.
The consequent further widening of the current account deficit will have to be funded somehow, for which overseas investors will demand a higher interest rate, further damaging the already parlous fiscal position and driving up market rates in the round – this at a time when the Government needs to keep borrowing to keep the economy afloat.
As it is, the Treasury is struggling to pull off the old St Augustinian trick of promising eventual chastity, but please not yet.
The economy is doomed if forced to tighten now, with output still in the doldrums and the pandemic not yet tamed.
The year ahead is going to require exceptionally skilful economic management and judgment. On the evidence of Covid, it would, perhaps, be unwise to bet on it.
Prime Minister Boris Johnson yesterday announced new curbs on pubs to tackle rising Covid-19 cases